Coalition targets being core market player with broker only UK cyber insurance launch

The business revealed yesterday that it was entering the UK market in a partnership with Allianz. The arrangement also sees Allianz take a share of Coalition’s US cyber book.

The UK launch is scheduled for September.

Motta declined to put an “arbitrary premium figure” forward saying it was aiming at “getting as many customers” and “capturing” as much market share in the UK as it can.

The expansion marks Coalition’s first move outside of the US and Canada. Formed in 2017 it launched 1 January 2018 and has already grown to over 700 people serving 160,000 customers.

“This year we expect to approach close to $1bn (£826m) in written premium,” Motta calculated.

The business had started off with standalone cyber insurance.

“Within six months of launch we added a tech E&O product that oftentimes is packaged with cyber,” Motta said adding that six months ago it took its first foray outside of these areas with a suite of executive risk products.

Revolution

In the UK the launch will be exclusively cyber insurance.

“Our vision is we are amid the fourth industrial revolution which in two words is digital transformation,” Motta set out. “Every business whether in the UK, Canada or the United States is becoming a digital business. The dependency on technology has never been higher for all businesses.”

Adding: “We have always attempted to formulate a cyber insurance policy that covers the growing perils and loss types that businesses can experience as a result of computer or technology failure.”

To the best of his knowledge Coalition is the only market player globally that by default will offer cover for property damage and bodily injury as the result of a computer security failure.

Five years ago such an offering caused people to scratch their heads, he acknowledged but after events such as at oil pipelines and water utilities it is now better understood. “The failure of these objects or devices can lead to very real world consequences,” he said.

Time consuming

Cyber had historically been a “very complex” and time-consuming insurance to place for brokers, he argued.

“The big source of differentiation for Coalition was the ability to algorithmically underwrite business to put bindable quotes in the hands of brokers in 60-120 seconds,” said Motta.

He listed that brokers can apply on behalf of customers using just the name of company, address, domain name “and a handful of representations and warranties regarding prior claims history”. This can also mean brokers can take bindable quotes to their existing client base when renewing other products and expand the take-up of the product line, he suggested.

Competition

There are already several players in the market who will not simply be stepping aside to allow Coalition to meet its goals.

Motta stressed that the business already competes with the same players in the US where its products are “fairly ubiquitous” and believes it can “go toe-to-toe” in the UK.

According to the company boss the biggest source of differentiation is the “notion of active insurance”.

“We are really trying to build a new category of insurance,” he summed up.

A traditional insurance policy will pay a covered claim but otherwise delivers zero value to the company or organisation that purchased it, Motta argued.

Instead Coalition brings “an incredible amount of computational power attached to an insurance policy” he countered “delivering value all the time”.

He explained: “We are monitoring every piece of infrastructure that they [policyholders] have that is touching the internet.”

Hackers

The cyber insurance and security provider’s approach is that the internet is the gateway and hackers start on the outside trying to get in.

“We have very good visibility of the attack surface of the business which encompasses everything from the website to the email to their VOIP telephony systems, their cloud services, their hosted on premises infrastructure etc.

“We can identify critical issues we believe will lead to a claim.”

Motta acknowledged that hackers do not generally wake up and target a specific SME.

“The reason the small businesses are being attacked is they have made one or more poor technological decisions that are visible on the internet,” he said detailing that hackers look for vulnerability.

Coalition’s ongoing task is to identify the vulnerable points and help SMEs remove them.

“It doesn’t mean they can’t be hacked but the likelihood that anyone even attempts to do so is dramatically less,” he said.

Claims

The process is behind the company’s claim that policyholders experience less than one third of the claims compared to the overall market.

Domestic US carriers enter data with the National Association of Insurance Commissioners and Coalition has calculated that it has 70% lower frequency on claims.

The firm works with around 14 carriers including Swiss Re, Lloyd’s, Arch, Zurich, Ascot and Vantage.

Motta acknowledged that with the data not being granular there was a danger of not comparing apples with apples but underlined that talks with carriers showed it was “dramatically outperforming others”.

“The reason Allianz is working with us is because we have shown the ability to deliver, on a sustainable basis, profitable results even as the rest of the market has deteriorated substantially,” he declared.

Recovery

The claims inevitable still come through and Motta flagged the operational recovery aspect of the offering.

“They need help getting their business back online before they need a cheque to come in the mail,” he assessed.

Coalition owns and operates an instant response and forensics firm that works exclusively for its own clients. “We are the only player to my knowledge that does that,” he said. It is included within the policy and while using it in the event of a claims is not compulsory over 80% of customers do.

Motta described the claims as “an expensive education” and each one is assessed to create a feedback loop to improve underwriting and risk engineering services.

“Hackers are creatures of habit,” he pinpointed noting that finding characteristics across claims meant the business could get ahead of problems on behalf of all clients.

SMEs

The business started in the SME sector in the US and expanded into the mid market. The UK offering will span across both segments from the start serving clients with turnover up to £1bn.

“There is a tremendous amount of respect for what we have built and the market share we have gained in the US. The businesses in the UK are in as much need of this approach as businesses in the US or Canada,” he said.

There is a perception that average sized businesses don’t care about cyber security but really they cannot afford the cost of becoming experts, running firewalls and other measures particularly at a time when they are trying to navigate the pandemic and economic environment to keep their firms running, Motta commented.

Summing up: “Our entire approach is to try and democratise access to cyber security and make it more affordable.”

In the US, Coalition even has a pet detective as a client: “Not Ace Ventura,” said Motta. “It is a real thing.”

Broker access

It will access UK clients through brokers who in turn will access Coalition either online or via manual submissions.

Some brokers have already signed up in preparation for when it can start selling policies.

“We have started to make appointments and are providing early access to a number of partners in the UK who have helped advise and inform our strategy,” Motta confirmed. The number stands at a handful and includes a mix of larger and smaller brokers to reflect the overall market.

The process to enter the market started around 12 months ago.

“Every great company starts with great people and we started building out the team a year ago,” said Motta putting the headcount in the UK at between 10 and 15 people.

Allianz will be the sole capacity provider in the UK and while there is no GWP cap the top limit of risk per client is £10m.

“From a capacity perspective it is the highest quality paper you could get,” said Motta.

Cyber though has had no shortage of headlines of capacity being hard to come by.

“I believe we are among the only participants, and there is maybe a handful, that have added capacity,” said Motta.

The insurer pullback has been driven in great part by increasing frequency and severity of claims.

“We have not experienced that same trend,” Motta responded noting Coalition’s frequency and severity had gone down.

Prices

The impact on the market though has been of increasing prices.

Reviewing the past six months Motta shared that in his lifetime he had never seen “any other insurance market that has hardened as dramatically as the cyber market”.

Future movements though will be more nuanced and segmented he forecast.

“In the US market we already see pricing in the lower end starting to flatten and come down slightly. I don’t expect continued price increases in the SME segment,” said Motta.

“In the middle market the steam is running out on price increases. It is only in that larger segment we will continue to see carriers potentially push more rate.”

Motta added that he was not predicting a softening market in the near term, just the end of massive year-on-year increases.

“Demand for cyber insurance is growing at an insanely quick clip,” he concluded. “By my estimates capacity would have to increase 30%-40% per year just to keep up with demand.”

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